Long Calls
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| how | Buy a call with an exercise price of (A). |
| when | Market bullish/volatility bullish. The more bullish the expectation, the further out-of-the-money (higher strike) the purchased call should be. A Long Call combines limited downside exposure with high gearing in a rising market. |
| Profit | Unlimited in a rising market. |
| Loss | Limited to the initial premium. |
| Even | Reached when the underlying rises above the strike price A, by the same amount as the premium paid to establish the position. |
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Long Call Spread
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| how | Buy a call (A), sell call at higher strike (B). |
| when | Market bullish/volatility neutral. The spread has the advantage of being cheaper to establish than the purchase of a single call, as the premium received from the sold call reduces the overall cost. The spread offers a limited profit potential if the underlying rises and a limited loss if the underlying falls. |
| Profit | Limited to the difference between the two strikes minus net premium cost. Maximum profit occurs where the underlying rises to the level of the higher strike B or above. |
| Loss | Limited to any initial premium paid in establishing the position. Maximum loss occurs where the underlying falls to the level of the lower strike A or below.
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| Even | Reached when the underlying is above strike A by the same amount as the net cost of establishing the position. |
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Long Call Strip
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| how | Buy call at strike A, buy calls at higher strike prices. Between 3 and 8 strikes may be used in total, with one call option purchased at each. In the graph above, a 4-option strip is shown. All call options must be for the same expiry month. |
| when | Direction bullish/volatility bullish. A long call strip gives the holder an increased exposure to a positive movement in the underlying price. |
| Profit | Unlimited in a rising market. |
| Loss | Limited to the initial premium. |
| Even | There will be a single break-even position, but the position in relation to the strikes will depend on the strike prices involved and the premium paid. |
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Long Two by One Ratio Call Spread
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| how | Sell a call (A), buy 2 calls at higher strike (B). |
| when | Market bullish/volatility bullish. Holder expects the market to settle above B. The position is usually established by selling an at-the-money or close to at-the-money call (A), and buying two out-of-the-money calls (B), such that it can be established at a small net credit. Depending on the strikes chosen, the position could also be established at break-even or at a small premium cost. |
| Profit | Unlimited if underlying rallies. At A or below, profit limited to net credit. |
| Loss | Greatest loss occurs at higher strike B, and is the difference between strikes B-A, minus (plus) net credit (debit). |
| Even | Lower break-even point is reached when the underlying exceeds the lower strike option A by the same amount as the net credit received (if initial position established at a net cost, there is no lower break-even point). Higher break-even point reached when intrinsic value of option A, is equal to the combined intrinsic value of the two higher strike options B, plus (minus) the net credit (debit). |
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Long Put Ladder
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| how | Sell put (A), sell put at higher strike (B), buy put at an even higher strike (C). |
| when | Direction bullish/volatility bearish. Holder expects underlying to (continue to) be between strikes A and B and firmly believes that the market will not fall. |
| Profit | Limited to the difference B-C, plus (minus) net credit (debit). Maximised between strikes A and B. |
| Loss | Unlimited if underlying falls. At C or above, loss limited to net cost of position. |
| Even | Lower break-even reached when the intrinsic value of the purchased put C plus (minus) net credit (cost) is equal to the intrinsic value of the sold options A and B. Higher break-even reached when underlying falls below strike C by the same as the net cost of the position. |
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Synthetic Long Underlying
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| how | Buy call, sell put at same strike (generally the at-the-money strike). This strategy is effectively a Reversal without the sale of the underlying. |
| when | Market bullish/volatility neutral. |
| Profit | Unlimited in a rising market. |
| Loss | Unlimited in a falling market. |
| Even | If the position is opened at a net debit, break-even is reached when the underlying rises above the strike price of the strategy by the net amount of premium paid. If the position is created at a net credit, break-even occurs when the underlying falls below the strike price by the net premium received. |
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Long Call Spread versus Put
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| how | Buy call (B), sell call at higher strike (C), sell put at any strike - the short put will generally be at a strike lower than both calls (A). This spread has a similar profile to the long call spread, but the short put reduces the cost of the strategy due to the intake of premium. |
| when | Market bullish/volatility bearish. |
| Profit | Limited in a rising market. |
| Loss | Unlimited in falling market. |
| Even | If the position is opened at a net debit, break-even occurs when the underlying rises above strike B by the net amount of premium paid. If the position is created at a net credit, break-even is reached when the underlying falls below strike A by the same amount as the premium received. |
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Long Straddle versus Put
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| how | Buy call (B), buy put at same strike (B), sell put at any strike (A) - generally the short put will be at a strike lower than the straddle. This spread offers similar exposure to the long straddle, but at a cheaper cost because of the premium taken in from the short put. |
| when | Market neutral to bullish/volatility bullish. |
| Profit | Unlimited in a rising market. Limited in a falling market. |
| Loss | Limited in a static market. |
| Even | Reached when the underlying moves in either direction from B by the amount of premium paid. |
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short put
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| how | Sell a put (A). |
| when | Market bullish/volatility bearish. Holder expects a gradual rise in the market with lower volatility. The optimal strike to be sold will be dependent on time decay and the vega level, although in general, the more bullish the view, the greater the sold option should be in-the-money (higher strike) in order to maximise premium income. Profit is limited to the premium received and thus if the market view is more than moderately bullish, a long call may yield higher profits. |
| Profit | Limited to the premium received from selling the put. |
| Loss | Unlimited in a falling market. |
| Even | Reached when the underlying falls below the strike price A by the same amount as the premium received from selling the put. |
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Short Put Spread
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| how | Sell a put (B), buy put at a lower strike (A). |
| when | Market bullish/volatility neutral. The Short Put at B aims to take advantage of a bullish market and the premium gained affords some downside protection with a Long Put at A. The spread offers a limited profit potential if the underlying rises and a limited loss if the underlying falls. |
| Profit | Limited to the net premium credit. Maximum profit occurs where underlying rises to the level of the higher strike B or above. |
| Loss | Maximum loss occurs where the underlying falls to the level of the lower strike A or below. |
| Even | Reached when the underlying is below strike B by the same amount as the net credit of establishing the position. |
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Short Combo
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| how | Buy a call (B), sell put at lower strike (A). |
| when | Market bullish/volatility neutral. The risk/reward profile is similar to that of a long future except that there is a plateau (A-B) in which there is no change in profit/loss. The plateau makes this a more suitable trade than a long future if volatility expectations are uncertain. |
| Profit | Unlimited in a rising market. |
| Loss | Unlimited in a falling market. |
| Even | Depending on the strikes chosen, establishing the position may yield a small premium cost or credit. If the position is created at a cost, break-even will occur where the market rises above point B by this amount. If the position is established at a credit, the break-even point will occur if the market falls below point A by the same amount. |
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Short Call Ladder
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| how | Sell a call (A), buy call at higher strike (B), buy call at an even higher strike (C). |
| when | Direction bullish/volatility bullish. Holder expects a substantial rise in the underlying market. |
| Profit | Unlimited if underlying rallies. At A or below, profit limited to net credit. |
| Loss | Limited to the difference between strikes A and B minus (plus) net credit (cost). |
| Even | Lower break-even reached when the underlying exceeds the lower strike option A by the same amount as the net credit received, (if initial position established at a net cost, there is no lower break-even point). Higher break-even point reached when intrinsic value of option A, is equal to the intrinsic value of the two higher strike options at B and C, plus (minus) the net credit (debit) in establishing the position. |
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Short Put Spread versus Call
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| how | Sell put (B), buy put at lower strike (A), buy call at any strike the long call will generally be at a higher strike than both puts (C). The profile is similar to that of a short put spread, but the long call provides unlimited profit potential should the underlying rise above C. |
| when | Market bullish/volatility bullish. |
| Profit | Unlimited in a rising market. |
| Loss | Limited in a falling market. |
| Even | If the position is opened at a net credit, break-even occurs when the underlying falls below strike B by the premium received. If the position is opened at a net debit, breakeven is reached when the underlying rises above strike C by the amount of premium paid. |
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Strategies | Neutral Strategies | Bearish 
Strategies